7. Moody’s Corporation (NYSE:MCO)
Value of Aquamarine Capital Management’s 13F Position (6/30/2024): $11.4 million
Number of Hedge Fund Shareholders (3/31/2024): 61
As with many of his fund’s holdings, Guy Spier hasn’t touched a single share of his Moody’s Corporation (NYSE:MCO) position for years, dating all the way back to the middle of 2020. He added 2,000 MCO shares to his position during Q2 of that year, lifting his ownership to 27,000, where it’s remained ever since. Overall hedge fund ownership of the credit ratings agency also hit an all-time high during that quarter, and remains close to those levels as of Q1 2024.
There’s another Buffett connection with Moody’s Corporation (NYSE:MCO), as the company has been a longtime holding of the Oracle of Omaha’s as well. It’s no surprise why Buffett and other value investors like the company so much. Its ratings business has very little competition and is growing at an impressive pace, hitting $987 million in revenue in Q1, a 35% year-over-year jump. Moody’s also offers analytics-based risk assessment and management services to clients, a business which grew revenue by 8% in Q1, its 65th straight quarterly revenue increase.
L1 Capital International Fund took advantage of Moody’s Corporation (NYSE:MCO)’s soaring stock price to divest its position last year, but continued to monitor the stock for a possible re-entry point, as relayed in the fund’s Q3 2023 investor letter:
“Portfolio adjustments during the September 2023 quarter were modest, diversified, but meaningful. In total around 10% of the Fund was divested and reinvested into opportunities we consider provide a superior risk-adjusted base case return.
We continued to trim our investment in high-quality technology businesses such as Intuit, mentioned previously. These adjustments were purely for valuation considerations, rather than any business concerns and some of these companies remain significant portfolio holdings.
The Fund’s remaining investment in Moody’s Corporation (NYSE:MCO)’s was fully divested during the September quarter. Moody’s is the world’s leading credit rating, risk assessment and analytics business. The core credit ratings business is largely a duopoly with S&P Global, with modest competition from Fitch Ratings and regional competitors – a great example of our preferred ‘Noah’s Ark’ industry structure.
The share price of Moody’s has been volatile over recent times, often reacting too greatly to changes in short-term capital markets conditions. During the quarter we took advantage of positive market sentiment to divest our holding at a share price we considered to be above fair value. Moody’s is very well managed and ‘ticks all our boxes’ for one of the world’s highest-quality businesses. The company has moved from our Portfolio to our Bench of potential investments. Having a Bench of ‘ready to go’ investment opportunities is a core aspect of our investment process. We continue to analyse Moody’s as if we owned it and are excited by the pull-back in the share price from recent highs.”
